Financial Analysis of Coca-Cola

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Introduction In the early 1886, a nonalcoholic beverage was presented to the world. Being the world’s biggest manufacturer, distributor, and marketer of nonalcoholic essences and syrups, Coca-Cola now is being sold in more than 200countries. At present, multinational corporations often use operational methods and financial tools for their foreign exchange exposure management. Foreign currency changes can have a big effect on the reported earnings of Coca Cola, being the multinational company it is, 80% of the company’s operating income comes from foreign operations.“The company manages its currency exposures on a consolidated basis, which allows it to net exposures from different operations around the world and takes advantage of natural offsets – for example, cases in which Japanese yen receivables offset yen payables. It also used financial contracts to further reduce its net exposure to currency fluctuations. Financial Instruments in Coca Cola Coca Cola made extensive use of derivative financial instruments throughout the years, as follows. Currency Options Contract: It gives the right of the headquarter of Coco Cola to sell or buy currencies at a specific exchange rate (principally euro and Japanese yen) before the expiration date to hedge against the possibility of adverse movements in foreign exchange rates. It is one of the best ways for certain companies to hedge against unexpected changes in the international exchange rates. Coca-Cola purchases these currency options to hedge certain anticipated sales. Today, 30-40% of the contracts are currency options contracts in Coca-Cola to hedge future receivables. Hedging Strategy A currency forward contract is a contract that often occurs in the foreign exchange market, which fixes the exchange rate for the purchase or sale of a currency for later transactions in the future. It doesn’t apply
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